- Feb 07
- 2 min read
How European commissioners really allocate EU funding
As published in City AM Wednesday 7th February 2018
“Pork barrel” has been a theme in American politics for almost as long as the United States has existed.
Many members of Congress work hard to secure public works projects, agricultural subsidies and the like for their own districts, almost regardless of the economic arguments for and against.
Surely the European commissioners would rise above such petty behaviour? After all, the European Union claims that they “represent the interests of the EU as a whole”.
It turns out that many of them have had their noses in the trough, both literally and metaphorically. A new scientific study shows that the agricultural commissioners have systematically over the years ensured that their own country receives more than its fair share of funding.
This cannot be dismissed as the product of some swivel-eyed Brexiteer. The findings are published in a paper in the latest issue of the American Economic Review (AER), probably the most prestigious academic economics journal in the world.
Kai Gehring of Zurich University and Stefan Schneider of Heidelberg find that “there is a significant positive relationship between the commissioners’ country of origin and the agricultural fund spending these countries receive during their terms in office”. Their highly sophisticated statistical analysis concludes that “this translates on average into about €850m per year for the country of origin of the respective commissioner”.
There are many anecdotes along the same lines. One which is very relevant in the light of the current Volkswagen emissions scandal is how, in 2007 and 2008, the German commissioner for enterprise and industry, Gunter Verheugen, repeatedly opposed a planned commission proposal to reduce new cars’ carbon dioxide emissions.
As Gehring and Schneider state, “his success in weakening the initial proposal was widely perceived as support for the German car industry”.
The current study is the first in-depth scientific analysis of the allocation of funds by the commissioners.
In economic terms, the Commission structure is a principal-agent one. The national government which makes the nomination is the principal, and the commissioner is the agent of the government. It would be surprising if their interests were not aligned to some extent, particularly since many commissioners want to return to political life in their own countries.
Tellingly, the authors note that they had to restrict their investigation to agriculture because “a lack of data and transparency” did not allow them to quantify the effects for the other directorates general. But it does not seem unreasonable to believe that they operate in a similar way to agriculture. The overall effect is to pert some €1.5bn a year to a few select countries, those which hold the big-spending portfolios.
The AER paper analyses almost three decades’ worth of data. So we might plausibly conclude that this has been going on ever since we joined the EU in 1973.
If we add back in the interest on the extra monies we have had to hand over as a result, even though the cost to us may be difficult to estimate, the study gives plenty of scope to come up with a big number.
Written by Paul Ormerod, Cowry's Chief Economist and a visiting professor at University College, London, and author of Positive Linking: How Networks can Revolutionise the World.